Making Claims Payment the Basis Of Performance Measurement In The Insurance Sector

Early adopters of insurance, centuries
ago, will marvel at how it has evolved to losing its true purpose and
strength in comparison with other solutions to risks that are beyond
our control. Notwithstanding some negative efforts to make
insurance look unhelpful to persons, businesses and government, it remains the
greatest discovery of humans to solve the problem of uncertainty!

Uncertainty has heightened in our world both in
terms of size and cost, so has the business of insurance also assumed
significant dimension especially within the last two decades. The global
insurance industry has become a four-trillion dollar play despite settling
claims for victims of tsunamis, hurricanes, terrorism and financial failures.
Seemingly, the insurance industry has been made stronger by the claims settled.

In this period, there has been deliberate shifts of
attention to the areas where these claims occurred and were settled. So, you
now understand why the Asian insurance industry is growing while others
especially in Africa are groaning. Their uncertainties have grown and
so have their needs for insurance in similar proportion.

Unfortunately, despite what the insurance industry
in Nigeria has doled out as claims settlement over the years, it still amounts
to little as compared to the impression of the public towards insurance, no
thanks to the regulator, National Insurance Commission (NAICOM), which is
saying nothing in this regard.

The uncertainties in Nigeria are "double-trouble"
as policyholders now have to face the uncertainties of when their claims will
be settled coupled with the general uncertainty we all face.

Turning Claims To Gains

As a market entry strategy, many Nigerian insurers
have been known to have used prompt claims payment to win big accounts of
organizations and hearts of many individuals.

So, it is well known and not strange. The question
is: Why is the same instrument - claims, not seriously considered as a strategy
for market growth? Or if one will readily respond in the affirmative, why then
do we have unsettled claims waiting for months and years? And they are many of
them!

Industry reports of the last two years on the
insurance industry in Nigeria show that there has been an upsurge in the number
of policyholders lodging claims while settlements have increased marginally
thus affecting the profitability of insurers.

To change the story of the industry towards and
beyond 2020 and have insurers begin to gain, the following steps are required:

1. Change the Performance Metrics

Like other businesses, the performance of insurance
companies are measured by their topline and bottom-line but they have
continuously scored below par, viewed from the industry's contribution to
Nigeria's GDP and returns to shareholders. Coupled with this, the primary
purpose of putting policyholders back to the position they were before claims
occurred have been eroding quite fast.

Industry analysts have reached a consensus that
tackling and resolving unsettled claims, then having a system that effectively
ensures prompt claims settlement to win the confidence of the insuring public
is the sure way for the turnaround of the insurance industry in Nigeria. Such
position must be followed by a strategic action like adopting claims settlement
status as a measure of the performance of insurance companies!

It is unthinkable, in my view, for any insurance
company to have unsettled claims for over a year yet receive regulatory
approval for its financial statements. More so, the quoted ones even announce
quarterly and half yearly results, sometimes posting profits, without regards
to the long outstanding claims of their policyholders.

The common reason adduced for such situation is
DOCUMENTATION! Often, this is attributed to failure of policyholders to
submit complete documents, awaiting reports of loss adjusters or such other
issues. My concern however is that this may become like the cases of unclaimed
dividends.

Meanwhile, examine the
following info extracted from the published 2018 financial
statements of some insurance companies to appreciate the magnitude of this silent
cancer that eats up and may consume the insurance industry going through
recapitalization:

No

Insurer

Category

Net Claims Expenses 2018

Outstanding Claims over 365 Days as at 2018

1.

African Alliance
Insurance Plc

Life

9,669,652

859,302

2.

AIICO Insurance
Plc

Composite

23,869,154

2,120,380

3.

AXA Mansard
Insurance Plc

Composite

12,130,577

5,404,670

4.

Cornerstone
Insurance Plc

Composite

2,436,237

2,623,216

5.

Leadway Assurance
Co. Ltd.

Composite

34,411,752

26,625,213

6.

Linkage Assurance
Plc

General

2,711,208

422,576

7.

Mutual Benefits
Assurance Plc

Composite

6,976,613

Nil

8.

NEM Insurance Plc

General

2,554,253

289,331

9.

Sovereign Trust
Insurance Plc

General

1,787,492

241,486

10.

Veritas Kapital
Assurance Plc

General

1,098,936

735,637

**All
figures are in Thousands of NAIRA

Today, it has become arguably difficult to declare
the most outstanding insurer in Nigeria in terms of claims settlement. Is it
that no insurer seeks to get more businesses using the strategy of prompt
payment of claims?

2. Compel adoption of technology

More technology is being adopted to enable
businesses that deliberately seek growth achieve desired results.

If we agree that prompt claims settlement can
stimulate more purchases of insurance contracts, then we should have the
industry embark on getting the right tech solution to manage and settle claims.
Such solutions already exist and it would make greater sense for the body of
insurance CEOs to rather invest in this than the "buy insurance"
campaign.

Simple processes that allows policyholders to KNOW
the status of their claims without waiting for those nauseating calls and
enquiries when a claim occurs would be necessary.

Genuine claimants should not be allowed to suffer
unduly because an insurer had previously dealt with a fake claimant.

The story of a gentleman who had been paying his
premium for a life policy over 14 years that has now been waiting for 11 months
to receive his surrender value from an insurance company that once dominated
the industry is amongst several sad tales we have today! This company's
performance can only be described as woeful and shameful.

Who Will Do What?

Firstly, from the point of the law, the Federal
Government through the Federal Ministry of Finance and NAICOM will have to
understand the negative impact of unsettled claims on its fight against
corruption and insecurity. They should exercise the powers that Sections 70 and
78 of the Insurance Act 2003 provide to address the issues of unsettled
claims

Secondly, the body of professional insurance
brokers, NCRIB needs to apply their influence to coerce insurers to settle the
claims of their clients. Quite sadly, insurance brokers have been known to lose
clients including Federal Government agencies on account of outstanding claims.

Thirdly, shareholders of insurance companies must
understand the implications of bearing long outstanding claims on account of
incomplete documentation in the books. As most insurers are pursuing
recapitalization, investors will certainly consider outstanding claims of over
365 days and this might be a deal breaker in some circumstances.

Fourthly, the Nigerian Insurers Association (NIA)
needs to unpack and repack itself. Sitting through monthly meetings with
members who have operated like fake insurers should be embarrassingly
burdensome.

The good news though is that there are
solutions even within Nigeria, especially amongst tech solution firms that the
insurance industry can rely on and they must take appropriate steps to save
themselves.

I know there are individuals and organizations
WILLING and READY to work with the insurance industry to change the
narrative and only hope that the leadership can release themselves from the
fear of failure and open up to those who have the innovative skills to put
insurance in Nigeria on the path of transformation.

Let the basis of measuring performance be claims
settlement and watch the industry become attractive again in all
ramifications.

* About The Author

Ekerete
Olawoye Gam-Ikon, MNIM, CPP is a management consultant with
specialization in Strategy and Insurance. He can be reached vide telephone on
+234-806-648-1111 and +234-802-585-0344 or by e-mail vide olagamola@gmail.com

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